What does the principle of marginal utility describe?

The principle of marginal utility focuses on the added satisfaction or benefit a consumer experiences from consuming one more unit of a good or service. Specifically, it describes how the satisfaction or utility derived from consumption typically decreases as a person consumes additional units. This concept is crucial in understanding consumer behavior and decision-making.

When exploring the idea of marginal utility, one finds that the first unit of a product might provide substantial satisfaction, but as the quantity consumed increases, the additional satisfaction from each subsequent unit tends to diminish. This phenomenon is known as diminishing marginal utility, which illustrates why consumers might be willing to pay less for additional units of a product over time.

Understanding marginal utility is essential for businesses when planning pricing strategies and managing inventory, as it reflects consumer preferences and how these preferences can change based on their consumption patterns.